Saturday, September 6, 2014

Jan Dhan Yojana

I come across people in different economic strata.  The ones that are relevant for this topic are the lower income group - consisting of street vendors, maid servants, gardeners, auto rickshaw drivers etc.  The ones I come across are fairly responsible, want to save some money, create assets as they age to support them in older age and so on.  Banks - that too nationalized ones do not figure in their idea of savings.  They park their money in gold, often buying at unreliable places, losing some money in the jewelry making charges and other expenses.  And they pledge it with pawn brokers losing either the jewel or money as interest.  To summarize, they haven't proven their savings potential to reasonable lenders like banks.

I think Jan Dhan Yojana is a good attempt for financial inclusiveness and expects some amount of fiscal responsibility.  I haven't seen a positive comment about it in popular media so far.  The Tamil magazine Kalki, in its editorial says it is the same as the Loan Melas of Indira Gandhi days and manages to quote an unknown Chief Minister from Bihar - of all the places.

Here is my understanding of the program (quoted from - even if it not the government authorized site, it appears to be correct).
  • Every person opening an account under this scheme will be getting a new zero balance account. This account is a special account and hence you would not be required to keep a minimum balance in your account.
  • The second benefit that one will be gaining is a life cover insurance which every account holder under this scheme is liable to it. Every account holder will get a life cover of worth Rs. 30,000.
  • Every account holder will be given a new RuPay debit card. This debit card comes along with a special accidental cover of 1 lakh rupees. Under this scheme by the PM of India there are two kinds of debit card that is named as the RuPay card and the RuPay kisaan card designed especially for the farmers.
  • After a period of 6 months the people opening an account under this scheme will be eligible for taking an overdraft of five thousand. Thus this will allow the common man of India to take a credit of five thousand rupees from the government of India. His can only be done if the account holder keeps the account active for a period of 6 months.
  • Later under this scheme some areas will also get a pension scheme for the elderlies.
  • Under this scheme the government of India is changing the face of India as many more ATMs are planned to be built as more number of debit card users are being made. It is a step of taking bank to every village.
  • The few changing steps include the evolution of mobile banking. Under this scheme the mobile banking will be available on Symbian phones as well. This facility was only available for smart phone users.
  • The credit amount of 5000 will be increased to 15,000 once the repayment of the loan is done on time. This will be a great help for the people of India to prosper as the money will be available for them
The liability of banks is very limited and it clearly encourages the low income group to save.  So far, our systems are built on distrust with enormous documentation, leading to workarounds and corruption.  Jan Dhan Yojana lets people cross the simple hurdle of opening the bank account.  After that, their action, that of saving money builds that trust - not a piece of paper.  Banks will have confidence with these account holders to offer them loans.

What can we - the middle class - do to contribute to this?

Start paying salaries to the maid servants, security guards, gardeners etc through their bank accounts.  Better still, pay about 10% of the salary through their bank accounts and rest as cash.  Pay it through online banking and send a message to their mobile (oh yes - they do have at least one) about the credit.  This will go a long way in helping them save and be part of the growth.